The case involved a commercial general liability policy issued to a company that installed drywall (the insured). The dispute arose when the insurance company refused to defend claims arising out of the installation of drywall in subdivision of residential properties. The general contractor for the project initiated binding arbitration proceedings against the insured, accusing it of breaching its contract by hanging sheetrock which may have had visible mold on it when it was installed. The insurance company, however, refused to defend or indemnify the insured based a provision in the policy that excluded coverage for property damage “expected or intended from the standpoint of the insured.” The insurance company also argued that provisions in the policy excluding coverage for property damage involving the replacement, restoration or repair of the insured’s work and work product applied. Finally, the insurance company argued that no potential for coverage existed because the insured had not “completed” the work before the policy expired, which was required for coverage.
Subsequently, the arbitrator awarded damages in favor of the general contractor and against the insured. The insured then filed for bankruptcy and a trustee was appointed for the bankruptcy estate. The trustee then filed the instant action for breach of the duty to defend, breach of the duty to indemnify, declaratory relief, and breach of the implied covenant of good faith and fair dealing. Both the trustee and the insurance company moved for summary judgment.
The district court denied the insurance company’s motion for summary judgment, and instead granted the trustee’s motion with respect to his breach of the duty to defend claim. The district court ruled that the expected or intended injury exclusion did not apply because, although the insured intended to hang sheet rock, the pertinent question in determining coverage was whether the insured intended to hang wet or moldy sheet rock. The district court ruled, however, that the allegations and evidence on this issue were conflicting. Therefore, the district court held that the insurance company had a duty to defend its insured until it was either determined that no potential for liability existed or the arbitration reached a conclusion.
The district court also concluded that the exclusions for “your work” and work not completed during the policy period did not preclude the duty to defend. According to the court, the evidence suggested that some of the the alleged damage was to property other than the drywall at issue. The district court also rejected the insurance company’s argument that the work was not “completed” until the homes were put to their intended use. Instead, the district court ruled that under the policy, work was deemed “completed” if all the work required under the contract was finished.
With respect to the duty to indemnify, however, the district court denied both parties’ motions for summary judgment, concluding that triable issues of fact existed regarding whether the insured acted with intent to install drywall exposed to mold and whether the “your work” exception covered all of the damages sought. Accordingly, the district court denied both parties’ motions for summary judgment on the indemnification issue.